Indian Budget Paves Way for Strength

Over the weekend, India announced its budget for 2015-16. This was a much-awaited budget, as it was the first after the new Prime Minister, Narendra Modi, swept the nation in elections last year. Coming into the power seat with his pedigree of economic success in his home state for 12 years, he was expected to deliver phenomenal plans to pave the way for success.

Like most such mega events, there are winners and losers. The budget was labeled as pro-business and lamented by the opposition for selling out the masses and the poor.

But the one unmistakable fact was that this budget was definitely pro-growth and has the promise to help raise India from its doldrums from a couple of years ago. For starters, the budget projects reducing the corporate tax rate from 30 percent to 25 percent.

Next it has pushed out implementation of the often-draconian General Anti-Avoidance Rules (GAAR), which means closing loopholes for businesses to exploit. So India is definitely courting businesses from overseas to come invest in India.

The much-hyped about "Made in India" slogan got a major boost, as the government reiterated its stance on lower imports by hiking the import duty on some finished products and easing business set-up in order to incentivize domestic production. This will further help allay fears of the skeptics and allow them to move forward.

The government also simplified foreign investment rules by merging foreign direct investment and foreign institutional investors investment limits. In a very interesting move, the government proposed a gold monetization scheme for productive use of gold, which could lower gold imports over time.

India has two major import bills — oil and gold. With oil prices now hovering around $50 per barrel and gold imports beginning to slow down, the current account deficit will fall below 1 percent soon and maybe try to climb into surplus. Extension of low withholding taxes and pushing back GAAR to fiscal year 2017-18 should be positive for capital inflows. If all these plans come true, the Indian rupee will shoot up toward the moon. Setting the stage for this alone is a great step and we can easily expect the rupee to strengthen in the medium term despite an expectation of falling interest rates.

On the negative side, hikes in the excise duty and increases in service tax are rather inflationary. The plan will work if oil prices continue to remain low. I am a believer that this will happen, so the Indian government is being opportunistic and pushing through some reforms while the going is good, but there is nothing wrong in that.

All in all, I expect to see some real reforming behavior in India and with that we will continue to see the Indian stock markets as well as Indian rupee rise. The easiest way to play this is to invest in the Indian stock exchange-traded funds listed in New York and take advantage of this new developing story.